We7, an ad-supported internet radio service headed by Cheshire entrepreneur Steve Purdham, was co-founded by artist Peter Gabriel.
Tesco said in a statement that the move would offer customers "a wider choice in how they consume music, complementing Tesco's current music offer in store and online".
We7 changed its business model from an on-demand service to an online DJ platform late last year. The site currently claims over 3 million users and 6.8 million tracks, licensed by all four major labels plus indies.
Mark George, digital director at Tesco, said: "Customers and technology together are transforming the way we listen to music. Tesco is already one of the UK's largest retailers of CDs; this move will help us offer a greater choice for the growing number of customers who want to access music instantly on any device, whenever and wherever they want. We7 has a great team and a good technology platform from which we can launch a range of digital music services in the future."
Steve Purdham, CEO of We7 said: "We are very excited by the prospect of teaming up with Tesco. With its loyal customer base, numerous marketing channels and international reach, we believe Tesco is the perfect partner to bring WE7's music services to a wider audience. Tesco has been an innovator in entertainment retailing for many years and we look forward to continuing this innovation digitally."
We7, a Milton Keynes-based business, was established in 2007.